Recent volatility aside, let's face the facts: We're actually in the fifth year of a solid bull run, a lengthy stretch of time by historical standards. Indeed, as I suggest here, at least one market maven worth taking seriously thinks we're in the midst of a "global bubble," and no wonder: The multiples of some hot properties do indeed appear stretched.
Would you buy McDonald's
Listen to a luminary
As investing legend Peter Lynch explains in One Up on Wall Street, one way of thinking of a company's P/E is as "the number of years it will take the company to earn back the amount of your initial investment." That's a sobering thought, but not to worry: There are still plenty of bargains to be found.
Bed Bath & Beyond
Free cash flow is the number you arrive at when you add up a company's cash from operations and subtract its capital expenditures. As measurements of fiscal health go, it's one of the more reliable -- certainly more so than earnings, which, alas, are susceptible to all manner of accounting gimmickry.
Not coincidentally, FCF is one of the main metrics my colleague Philip Durell works with at the Fool's Inside Value investing service. Philip is on the lookout for solid but "deeply undervalued" companies, firms with discounted valuations that are loaded up with market-beating potential. And on that front, so far, so good: Taken collectively, his list of recommendations has beaten the market since the service's inception.
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This article was originally published on Feb. 17, 2007. It has been updated.
Shannon Zimmerman runs point on the Fool's Champion Funds newsletter service. At the time of publication, he didn't own any of the securities mentioned above. Bed Bath & Beyond is an Inside Value and Stock Advisor recommendation. You can check out the Fool's strict disclosure policy right here.